What is the Driving Force Behind Car Companies Offering Insurance?

From online shopping to DIY cable subscriptions, consumers are looking for ways to streamline their shopping experience — and luxury car dealers are taking note. This year alone, Porsche and Tesla, Inc. (NASDAQ: TSLA) have announced plans to offer insurance to car buyers directly through their brand, essentially skipping the independent auto insurer.

Right now it’s a trend among niche, high-end brands, but it’s one that technology is making easier for other car manufacturers to adopt. Advances in the technology-driven information reporting in vehicles, known as telematics, give both insurers and original equipment managers (OEMs) unique insight into cars and drivers alike, making the marriage of dealers and insurance companies a natural progression. As this trend picks up, it’s important to understand what benefits it has to offer consumers, and how it will affect the insurance marketplace.

Car companies are embracing the shift

  • Porsche: In June 2019, Porsche launched its own auto insurance option with a pricing model that is, in part, determined by the number of miles driven. For consumers who may be more selective about when, and how often, they drive their luxury vehicle, this shift can help drivers save. Currently, the product is only available to drivers in Illinois and Oregon, but the company has plans to expand to more states.

  • Mercedes Benz: Mercedes Benz also recently partnered with Liberty Mutual to offer a discounted rate and auto coverage designed specifically for its customers. While the rates will differ from one customer to another, the company estimates its car owners can save up to $509 when they switch to their insurance.

  • Tesla: In April 2019, Tesla CEO Elon Musk announced plans for his company to join their ranks by offering its own insurance product through a program called Tesla Insurance Services. Part of the reason for the shift, he claims, is to help reduce rates for consumers. It currently averages $2,450 per year to insure a Tesla vehicle, yet as of August 2019, the service is not available -- so Musk’s claims of lower rates have yet to be tested.

Combined with brand-specific services, consumers can expect a less painful car shopping and maintenance experience. Consider, for example, Tesla’s proposed offerings. In addition to standard services such as auto repairs and collision insurance, it will also offer customers cheaper repairs and discounts specific to Tesla vehicles, such as auto-pilot discounts, wall charger coverage and cyber identity fraud expense, among others. For auto manufacturers, more services in-house helps brands offer top-quality service to their customers while keeping a close watch on their product and reputation.

Technology is driving the change

While more and more customers are becoming interested in a process that streamlines the car shopping experience, technology is making it easier for insurance to be integrated into that process. Telematics allows car manufacturers and insurers to monitor cars by combining GPS technology with communication over a 3G network. The ability to use this technology, which can include monitoring driver habits, location services and “infotainment,” provides insurance companies with more insight into a car and driver’s performance, therefore improving the ability to more accurately measure risk. Insurance companies have already launched nearly 250 telematics programs around the world, including Progressive Corporation’s (NYSE: PGR) Progressive Snapshot program and Allstate Corporation’s (NYSE: ALL) Allstate Drivewise program, both of which reward good drivers with lower rates.

The collected data often (though not always) flows through devices embedded in the car by the manufacturer, making the trend beneficial to OEMs as well. While insurers benefit from data around speed or miles driven, OEMs may start to see the benefit of smart technology through aftermarket subscription services. A report by management consulting firm McKinsey & Company found new connectivity business models that include data-connectivity services could increase automotive revenues by $1.5 trillion by 2030.

With technology-fueled changes becoming advantageous for OEMs and insurance companies alike, the partnership between the two is likely to strengthen. Though technology doesn’t have to be too advanced — Porsche’s odometer tracking service can be as simple as taking a picture of your odometer and sending it to the company. Even as car companies develop their own unique insurance models, they still need experts on their side who are already familiar with risk management. Further, dealers need to inspire confidence in consumers, which name brand recognition can help accomplish.

Consumers can expect those partnerships to continue in telematics’ infancy stage, even as car companies provide niche offerings to those who drive cars that rely on cloud-based technology. However, just as autonomous cars were once the purview of fantasy, times change, and so do consumer demands

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